BRANDON UNIVERSITY RETIREMENT PLAN ANNUAL REPORT Incorporating the Annual Financial Statements

Transcription

1 BRANDON UNIVERSITY RETIREMENT PLAN ANNUAL REPORT Incorporating the Annual Financial Statements

2 June 2018 Dear Member: Enclosed is a detailed report on the operation of the Brandon University Retirement Plan this past year. Its purpose is to provide general information to the membership, particularly with regard to the financial operation and performance of the Plan. Full audited financial statements for the year ended December 31, 2017 are included in this report. The Plan, under the guidance of Connor, Clark & Lunn Investment Management Ltd., had a rate of return of 11.5% in 2017 (8.5% in 2016). The December 31, 2016 Brandon University Retirement Plan valuation completed by the Plan actuary, Eckler Ltd. determined that the Plan had a solvency deficiency of Plan assets over calculated Plan obligations (liabilities) of $41,098,000 in 2016 ($42,525,000 in 2015). The solvency ratio was in 2016 (0.762 in 2015). In January 2009, Brandon University filed an election to be exempt from the requirement to make solvency deficiency special payments in accordance with the Solvency Exemption for Public Sector Pension Plans Regulation. As a result of the election, the University is not required to make special payments into the Plan related to the solvency deficiency. The December 31, 2017 plan valuation will be completed by September 30, This is later than normal and reflects the capacity issues for Eckler for this year only. The Pension Trustees agreed to the later valuation which must be filed with the Manitoba Pension Commission by September 30, The following estimated figures will be confirmed at that time. The Going-Concern funding method showed an unfunded liability of $5,116,000 on December 31, 2016 ($10,326,000 in 2015). The 2017 unfunded liability is estimated to be $2,083,000 as at December 31, The University is required to make special payments to fund this unfunded liability over a maximum 15 year amortization period. The existing unfunded liability will be funded over 10 years. The annual cost of this special payment for 2017 was $664,000 ($1,291,000 in 2016). The annual special payment for 2018 is estimated to be $293,000. A Going-Concern Valuation assumes Brandon University will continue to operate, the Retirement Plan will continue to operate, and pension benefit obligations will come due through member retirement, termination of employment, or death. The improvement of the financial position of the Plan is mainly due to greater than expected investment returns based on a smoothed asset valuation method and special payments made in 2017 to fund the unfunded liability. If the solvency ratio of the plan is less than 0.90, the Pension Benefits Act of Manitoba requires the next valuation be effective no later than December 31, This valuation will be completed in The Board of Trustees of the Retirement Plan welcomes any comments or questions from all members. Sincerely, The original was signed by Dr. Todd D. Fugleberg and Mr. Scott J. B. Lamont. Dr. Todd D. Fugleberg, PhD Chair, Board of Trustees Brandon University Retirement Plan Mr. Scott J. B. Lamont, FCPA, FCGA, MBA Vice-President (Administration& Finance) Brandon University 2

3 Annual Report for the year ended December 31, 2017 Members of the Board of Trustees (as of December 31, 2017): Heather Gillander Todd Fugleberg Tanya Cantlon Becky Lane Brent Cuvelier George Manby Karen MacDonald Scott Lamont Shawn Chambers Maurice Koschinsky BUFA BUFA MGEU MGEU IUOE "A" IUOE "D" Exempt Staff Board of Governors Board of Governors Pensioners Consultant/Actuary Investment Manager Investment Sector Managers Custodian Plan Administrator Eckler Ltd. Connor, Clark & Lunn Investment Management Ltd. Connor, Clark & Lunn High Yield Bond Fund I Connor, Clark & Lunn Bond Fund Class A Connor, Clark & Lunn Emerging Markets Equity Connor, Clark & Lunn Q Equity Extension I Connor, Clark & Lunn Q US Equity Fund SRA Canadian Equity Fund PCJ Canadian Equity Fund NS Partners International Equity Fund A CIBC Mellon Global Securities Services Company Board of Trustees of the Brandon University Retirement Plan 3

4 General Information a) The Brandon University Retirement Plan is a final average, defined benefit plan, which provides a benefit to all eligible employees of Brandon University upon retirement, termination, or death. The Plan is administered by the Board of Trustees of the Brandon University Retirement Plan. A full description of the Plan is contained in the official Plan document and is available on the Brandon University website or from the Human Resources Office. b) The Plan is funded by contributions from Plan members and the University, as well as the income from investments. Net assets in the plan, at market value, at December 31 were: 2017 $185.4 million 2016 $169.9 million 2015 $159.2 million 2014 $155.7 million 2013 $144.4 million c) Similar to many other maturing pension plans in Canada, the number of pensioners is increasing relative to the number of active contributing members of the Plan. Over the past ten years, the number of pensioners has increased from 43% of the active members to 66% in Brandon University Retirement Plan membership at December 31: Active members Pensioners Deferred, inactive and Pending Election 4

5 An impact of increasing numbers of pensioners relative to active contributing members is the increasing need for investment income of the Plan to fund future income requirements. Pensions paid annually to retirees are 149% of the annual regular contributions from Plan members and the University. In addition, the University is making unfunded liability special payments to make up the unfunded liability shortfall calculated by the Plan actuaries. Plan member transactions: Member and University regular contributions to the plan $5,360,233 $5,314,782 Unfunded liability special payments to the plan 664,000 1,291,000 Transfers from other plans 30,681 34,244 Pensions paid to retired members 8,039,812 7,518,346 Death benefits and refund settlements due to terminations 1,119, ,346 d) The Brandon University Retirement Plan is subject to a periodic valuation by an independent actuary to determine whether the current Plan assets and contributions from members and the University will adequately fund future benefits. The Pension Benefits Act of Manitoba requires that such a study be done at least every three years as long as the solvency ratio of the Plan is greater than The most recent valuation was performed by Eckler Ltd. as at December 31, Using the solvency valuation method, the Plan had a deficiency of assets over actuarial (calculated) liabilities of $41,098,000. Using the goingconcern or aggregate method, the Plan had an unfunded liability of $5,116,000 in The unfunded liability is estimated at $2,083,000 as at December 31, The University is required to make special payments to fund the unfunded liability over a maximum 15 year amortization period. The remaining existing unfunded liability will be funded over 10 years. The annual cost of this special payment for 2017 is $664,000 ($1,291,000 in 2016). The annual special payment for 2018 is estimated to be $293,000. No additional special payment is required to be made for the solvency deficiency because the University is exempted under the Solvency Exemption for Public Sector Pension Plans Regulation. However, since the solvency ratio of the plan is less than 0.90, the Pension Benefits Act of Manitoba requires that the next valuation be effective no later than December 31, It will be completed in e) If the average net investment return on the Fund during the last four years exceeds 6.0% per annum, each pensioner who was receiving a pension at the end of that year, is entitled to receive an increase in that pension effective from July 1 in the following calendar year. The details of this entitlement are recorded in article 7.3 of the Brandon University Retirement Plan document, as amended April 11, The result of this calculation over the past 10 years is as follows. 5

6 Brandon University Historical Increases (Article Supplementary Pension) Brandon University Pension Increases - Post 2013 amendment Year (1) (2) (3) (4) (5) Net Investment Return (market value) Four-year Geometric Average Return Excess of Average return over 6% Increase in CPI Actual COLA given Effective Date of COLA Increase % 8.45% 2.45% 0.80% 1.39% 1 July % 8.45% 2.45% 1.20% 1.70% 1 July % 7.93% 1.93% 1.50% 1.50% 1 July % 9.43% 3.43% 1.60% 1.60% 1 July % 9.06% 3.06% 1.50% 1.71% 1 July % 7.82% 1.82% 1.90% 1.82% 1 July 2018 COLA = lower of columns (3) or (4) Investment Management Objectives The current investment manager, Connor, Clark & Lunn, Investment Management Ltd. (CC&L), was appointed December 30, Since that time the plan investment management has been diversified by making use of several investment sector specialists within the family of companies working with CC&L, under the general management of CC&L. The Investment Manager operates with the general objective to maximize long-term total returns while protecting the capital value of the fund. The Manager seeks to attain an average rate of return of 3% over the CPI increase for the same period. Secondary objectives are to generate returns in excess of the return of the Benchmark Fund over rolling four-year periods and to perform in the top third of investment managers as measured by a nationally recognized service. RBC Investor & Treasury Services was used as the measurement service for this report. The Brandon University Retirement Plan annual investment performance (11.5%) did exceed the objective of CPI plus 3% (4.9%) for 2017 as well as the four year rolling average ending in 2017 did. (BU Plan was 8.3% vs. 4.9%). The Plan was equal to the rolling four year average benchmark return (BU Plan 8.3% vs. Benchmark 8.3%). Although the top third of managers is not reported by BIA, the BU Plan annual return (11.5%) was higher than the median (9.2%) and higher than the top 25% (9.8%) of balanced fund investment managers in The BU Plan four year rolling average return (8.3%) was higher than the median (7.8%) but lower than the top 25% (8.6%) of balanced fund investment managers. 6

7 Investment Performance Period Annual Ending Total Rate of December 31 Return Increase in CPI % 1.9% % 1.5% % 1.6% % 1.5% % 1.2% Benchmark return for % Four year rolling average ending 2017 Retirement plan performance 8.3% Benchmark performance 8.3% BIA Balanced Fund Performance Summary For the Period Ending December 31, 2017 Top quartile (12 months) 9.8% Median (12 months) 9.2% BU Retirement Plan (12 months) 11.5% Top quartile (4 year rolling) 8.6% Median (4 year rolling) 7.8% BU Retirement Plan (4 year rolling) 8.3% 7

8 The investment mix of the Brandon University Retirement Plan is established by the investment manager based on market expectations within guidelines authorized by the Trustees of the Plan. On December 31, 2017 the asset mix and the annual performance in each sector follows: % of 12 month 12 month Portfolio Portfolio Benchmark return return Canadian Equities 27.8% 10.4% 9.1% Foreign Equities 37.3% 17.4% 15.2% Bonds 34.6% 6.6% 7.0% Cash 0.3% 1.0% 0.6% TOTAL FUND 100.0% 11.5% 11.0% 8

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11 Responsibility for Financial Reporting The Board of Trustees of the Brandon University Retirement Plan is responsible for the preparation and presentation of the financial statements and the accompanying notes. The Board of Trustees relies upon the accounting and financial systems established by Brandon University. The financial statements are prepared in conformity with the accounting policies noted in the financial statements, and are reviewed and approved by the Board of Trustees of the Brandon University Retirement Plan. An independent financial auditor whose opinion is included herein examines the statements. To fulfil its responsibility, Brandon University maintains internal control systems to provide reasonable assurance that relevant and reliable financial information is produced. The original was signed by Dr. Todd D. Fugleberg and Mr. Scott J. B. Lamont. Dr. Todd D. Fugleberg, PhD Chair, Board of Trustees Brandon University Retirement Plan Scott J. B. Lamont, FCPA, FCGA, MBA Vice-President (Administration & Finance) Brandon University June 8,

12 Statement of Financial Position as at December 31, 2017 ASSETS Accounts receivable Investments (Note 2 b) Cash and short-term investments Bonds and debentures Canadian equities Foreign equities Total Assets $ ,881 $ 249, , ,222 64,052,315 67,998,648 51,457,904 41,974,661 69,052, ,948, ,737, ,477, ,986,317 LIABILITIES Accounts payable Total Liabilities Net assets available for benefits Pension obligations Plan surplus(deficit) (going concern basis) $ 185,433, ,952, ,602, ,581,000 7,831,809 $ (2,628,484) The accompanying notes are an integral part of the financial statements. 12

13 Statement of Changes in Net Assets Available for Benefits for the year ended December 31, CONTRIBUTIONS Members $ 2,322,506 $ 2,313,213 University 3,037,727 3,001,569 University special payments (Note 9) 664,000 1,291,000 Transfers from other plans ,640,026 OTHER INCOME Investment income Interest 2,572,481 1,768,082 Dividends ,421,198 4,285,567 Change in fair value Realized 11,148,570 12,000,480 Unrealized 2,756,720 (3,004,792) 13,905,290 8,995,688 Other income 229 Total Increase in Net Assets 25,381, ,281 PAYMENTS Benefit payments Retirements 8,039,812 7,518,346 Refunds 238, ,346 Deaths ,159,042 8, Administrative expenses Actuarial and consulting fees 73,242 69,981 Custodian and plan administration fees 171, ,148 Legal and audit fees 9,210 8,984 Investment management fees 496, ,891 Trustee expenses 866 1,446 GST rebate (9,438) (8,660) Total Decrease in Net Assets 9,900,338 9,176,482 Net Increase in Assets Available for Benefits 15,481,293 10,744,799 Net Assets Available For Benefits, beginning of year 169,952, ,207,717 Net Assets Available For Benefits, end of year $ 185,433,809 $ 169,952,516 The accompanying notes are an integral part of the financial statements. 13

14 Statement of Changes in Pension Obligations for the year ended December 31, 2017 Interest accrued on benefits Transfers Benefits accrued Benefits paid Experience (gain)/loss Net Change in Pension Obligations Pension Obligations, beginning of the year Pension Obligations, end of year $ $ ,473,000 $ 9,136,000 31,000 34,000 5,338,000 5,369,000 (9,159,000) (8,435,000) (662,000) ,021,000 6,453, ,581, ,128, ,602,000 $ 172,581,000 The accompanying notes are an integral part of the financial statements. 14

15 Notes to the Financial Statements for the year ended December 3 I, Description of the Plan The following description of the Brandon University Retirement Plan is only a summary. More complete information is contained in the official Plan document. a) General The Brandon University Retirement Plan is a final average contributory defined benefit pension plan established April I, 1974 for the benefit of the employees of Brandon University. The assets of the Plan are held in trust in the name of ten Trustees - eight elected by and from the Plan membership and two appointed by the Board of Governors. The Trustees oversee the administration of the Plan and set forth the investment guidelines. Their obligations and responsibilities are defined in a trust agreement with Brandon University. An asset manager invests the Plan assets based on the approved investment guidelines and according to the terms of the Managed Account Agreement. The Plan is registered with the Pension Commission of Manitoba and meets the requirements of the Pension Benefits Act of Manitoba and the Income Tax Act (Canada). b) Membership Unless otherwise stated, all Brandon University employees are eligible to become members of the Plan on their date of employment. Full-time and certain part-time employees are required to join the Plan. Membership is optional for other part-time and certain specified employees. c) Funding The Plan receives its funds from: i) The contributions of members - Members of the University are each required to contribute at the rate of 8.0% of salary up to the Year's Basic Earnings (YBE), 6.2% between the YBE and the Year's Maximum Pensionable Earnings (YMPE) and 8.0% in excess of the YMPE. Members contribute only on the amount earned up to the Year's Maximum Contributory Earnings. ii) The required and special contributions of the University - The University is required to contribute at the rate of 8.0% of salary up to the YBE, 6.2% between the YBE and the YMPE and 8.0% in excess of the YMPE with no salary limitations applied, plus any special payments for the unfunded liability required under the Pension Benefits Act of Manitoba. iii) the income from investments An actuarial valuation is performed at least once every three years to determine the adequacy of the funding for pension benefits (see note 2g). d) Plan Benefits The Plan provides for the payment of benefits to a member upon retirement, death, or termination of employment with Brandon University. At retirement, the member is entitled to an annual pension equal to 2% of final average earnings multiplied by the member's years of credited service less 0.6% of CPP average earnings multiplied by the member's years of service since January 1, Final average earnings are the average of the best 5 years earnings 15

16 Notes to the Financial Statements for the year ended December 31, 2017 in the last 12 years prior to retirement. CPP average earnings are the member's average earnings up to the YMPE in the 5 years prior to retirement. Full benefits are payable (a) upon normal retirement; (b) upon early retirement for members who qualify. Reduced benefits are provided to members who retire early and do not qualify for full benefits. Pensions are increased automatically on July I of each year by the amount the net four-year geometric average investment return on the fund, as determined by the actuary, exceeds 6.0% per annum, subject to a maximum increase of CPI for the previous year. Death and termination benefits are based on the value of the member's pension as determined by the Plan Administrator at the time of death or termination of employment. The options available to beneficiaries and terminating members are outlined in the official Plan document. 2. Significant Accounting Policies a) General The Brandon University Retirement Plan prepares its financial statements in accordance with Canadian accounting standards for pension plans. The Plan has adopted Part II (Private Enterprises) accounting standards for all accounting policies that do not relate to the valuation of the investment portfolio or pension obligations. b) Financial Instruments The financial instruments of the Plan consist of accounts receivable, investments, and accounts payable. The Plan recognizes and derecognizes all financial assets and liabilities in accordance with Financial Instruments, Section 3856, of Part II of the CPA Canada Handbook. Initially, all financial assets and liabilities are recorded at fair value on the Statement of Financial Position. Subsequent measurement is determined by the classification of each financial asset and liability. Investments assets and liabilities are measured at fair value based on International Financial Reporting Standards (IFRS 13) with the change in fair value recognized in the Statement of Changes in Net Assets Available for Benefits. Financial instruments classified as accounts receivable and accounts payable are measured at amortized cost using the effective interest method. Investments are recorded at market value on a trade date basis. Fair values of investments (including the underlying assets of investments held m pooled funds) are determined as follows: Fixed Income: Short-term investments are recorded at cost which approximates market value. Bonds and debentures are valued at market by an independent securities valuation company. Equity: Publicly traded securities are recorded at year end market prices. 16

17 Notes to the Financial Statements for the year ended December 31, 2017 c) Investment Income Dividend income is recognized on the ex-dividend date and interest income is recognized on the accrual basis as earned. d) Foreign Currency Translation The fair value of investments denominated in foreign currencies is translated into Canadian dollars at the exchange rate in effect at year end and the resulting change is included in the change in fair value of investments. Revenue and expense transactions are translated at the exchange rates prevailing on the dates of the transactions and are included in investment income or the change in fair value of investments (realized gains or losses) at the translated amounts. e) Contributions Contributions from the members and the University are recorded on an accrual basis. Cash received from members as transfers from other pension plans is recorded when received. f) Use of Estimates Preparation of the financial statements requires management to make estimates and assumptions that primarily affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of changes in net assets available during the year. Actual results could differ from these estimates. g) Pension Obligations The pension obligations of the Brandon University Retirement Plan are the actuarial present value of accrued pension benefits determined by applying the best estimate assumptions and the projected benefit method prorated on services. 3. Financial Risk Management Management of investments is governed by the managed account agreement between the Brandon University Retirement Plan and Connor, Clark & Lunn Management Ltd. The investment management objective of the Plan is to maximize the long-term total return while protecting the capital value of the fund from major market fluctuations through prudent management of asset allocation and prudent selection of investments. The investment manager is to attain an average rate ofreturn of3% over the CPI increase for the same period. The Plan's investments are publicly traded. There have been no substantive changes in the Plan's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from the previous period unless otherwise stated in this note. 17

18 Notes to the Financial Statements for the year ended December 31, 2017 a) Market Risk Market risk is the risk the value of an investment will fluctuate as a result of changes in market prices whether those changes are caused by factors specific to an individual investment or volatility in interest rates, foreign currencies or other factors affecting similar securities traded in the market. The Plan's cash and investments, including investments denominated in foreign currencies, are reported in Canadian dollars as follows: Canadian cash and short-term investments Canadian bonds Canadian equities $ ,052 51, (in thousands of dollars) % $ % 34.6 % 67, % --1:1.}1 % % US equities Non-North American equities 115,896 30,018 39, % 110, % 16.2 % 25, % 21.1 % 34, % $ 184, % $ 169, % i) Interest rate risk is the risk that fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The value of the Plan's fixed income investments is directly affected by changes in nominal and real interest rates. There are guidelines in the managed account agreement for the fixed income investment portfolio related to permitted investments, diversification, and quality, and duration management which are designed to mitigate the risks of interest rate volatility. Duration is the most common measure used to quantify the impact of changes in bond prices due to change in interest rates. Using this measure it is estimated that a one percent increase or decrease in interest rates, with all other variables held constant, would result in a change in fair value on Canadian bonds of 14.26% or $9,135,803 ( % or $8,353,438). ii) Currency risk is the risk that the value of non-canadian investments measured in Canadian dollars will fluctuate due to changes in foreign exchange rates primarily related to foreign equity holdings. In some instances, forward foreign exchange contracts are used to manage currency exposure in connection with securities purchased in foreign currency. Forward foreign exchange contracts are contractual agreements that establish an agreed upon exchange rate at a settlement date in the future for the purpose of protecting future cash flows from adverse price movements. A 10 percent increase or decrease in exchange rates, with all other variables held constant, would result in a change in unrealized gains/(losses) of $6,905,297 ( $5,917,154). Generally when there is a 10% strengthening (weakening) of the Canadian dollar versus the corresponding currency, there would be a I 0% decrease (increase) in the value of the corresponding country's portion of the portfolio from this currency movement. 18

19 Notes to the Financial Statements for the year ended December 31, 2017 iii) Other price risk is the risk that the fair value or future cash flows from portfolio holdings fluctuate because of changes generally, in market prices, other than those arising from interest rate risk or currency risk or as a result of a deterioration in the outlook for a specific issuer. To manage its price risk arising from investments in equity securities, by policy, the portfolio is well diversified. The managed account agreement sets out the limits of investments in any one security as well as concentration within market sectors. The Plan's target asset allocation based on fair value is: Fixed income Canadian equity Foreign equity Cash 35 % 35 % 25 % 5% Total exposure to equities is to be no less than 35% of the Pension Fund and no more than 70% of the Pension Fund. b) Liquidity Risk Liquidity risk is the risk that the Plan will encounter difficulty in having available sufficient funds to meet its commitments as they come due. It is the Pension Plan's policy to ensure that it will have sufficient cash and short-term investments to allow it to meet its liabilities when they come due. The term to maturity and the related market values of bonds and debentures are as follows: Term to Maturity Less than one year One to five years Over five years $ (in thousands of dollars) I, $ 1,689 2, Total bonds and debentures $ ===64=.0=5 $ ===67=9=9= c) Credit Risk Credit risk arises from the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract. Credit risk is the risk the issuer of the debt security or a counter party to a derivative contract is unable to meet its financial obligation. Credit risk encompasses the risk of a deterioration of credit worthiness and concentration risk. The Plan limits credit risk through a managed account agreement with its investment manager that details the specific quality and concentration constraints. At December 31, 20 I 7, the Plan's maximum credit risk exposure related to cash and short-term investments and bonds and debentures is $64,437,973 ( $68,590,870 ), and accounts receivable is $528,881 ( $249,242). The Plan limits credit risk by acquiring high quality securities and following the managed account agreement. The managed account agreement establishes limits for ownership of investments and acceptable credit ratings. In the case of bonds and debentures, all must be rated BBB or higher. 19

20 Notes to the Financial Statements for the year ended December 31, 2017 The breakdown of the fixed income investment portfolio by credit rating from various rating agencies are as follows: (in thousands of dollars) Bonds and debentures investments Credit Rating AAA $ 9, % $ 10, % AA 31, % 22, % A 14, % 21, % BBB % % 64, % 67, % Cash and short-tenn investments $ $ Capital Management The capital of the Brandon University Retirement Plan is comprised of the net assets available for benefits. The combined assets of the Plan are held in the name of the Trustees of the Plan as described in Note 1 a). The Trustees, as the administrators of the Plan, on behalf of Brandon University, have developed appropriate risk management strategies, as described in Note 3, to preserve the net assets available for benefits. In accordance with the provisions of The Pension Benefits Act of the Province of Manitoba and the provisions of the Income Tax Act (Canada) a Statement of Investment Policies and Procedures (SIPP) has been established. The SIPP states the investment objectives and investment guidelines by class of investment. The objective when managing capital is to maximize the Iong-tenn total return through prudent selection of investments in compliance with the investment rules under the respective federal and provincial Pension Benefits Acts. There have been no significant changes to the University's capital management objectives, policies and processes in the year nor have there been any changes in what the Trustees consider to be the Plan's capital. The Pension Plan has complied with externally imposed capital requirements during the year. 5. Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on the assumptions that market participants would use when pricing the item being measured under current market conditions, including assumptions about risk. The Plan uses a fair value hierarchy under which the inputs to valuations techniques used to measure fair value are categorized into three levels. They are as follows: Level 1: Inputs are quoted market prices (unadjusted) in active markets for identical assets or liabilities the Plan can access at the measurement date. Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (prices) or indirectly (derived from prices). 20

21 Notes to the Financial Statements for the year ended December 31, 2017 Level 3: Inputs are unobservable inputs for the asset or liability. (in thousands of dollars) 2016 Level 2 Level 3 Total Level 2 Level 3 Total Cash Short-term investments Bonds and debentures Canadian equities Foreign equities $ ,052 51,458 69,053 $184,948 $ $ 19 $ ,052 67,999 51,458 27,945 69,053 50,680 $184,948 $147,216 $ ,999 14,029 41,974 8,492 59,172 $22,521 $ 169, Investments Section 3.29 of the Pension Benefits Act Regulations requires disclosure of each investment that has a fair value greater than 1 % of the fair value of all investments. The investments, including pooled funds, are as follows: 2017 Bonds and debentures: Connor, Clark & Lunn Bond Fund Class A $ 60,513,476 Connor, Clark & Lunn High Yield Bond Fund I $ 3,538,839 Canadian equities: Connor, Clark & Lunn Q Equity Extension I $ 17,093,410 PCJ Canadian Equity Fund $ 17,167,072 SRA Canadian Equity Fund $ 17,197,421 US equities: Connor, Clark & Lunn Q US Equity Fund $ 30,018,182 Non-North American equities: NS Partners Int'! Equity Fund A $ 29,582,302 Connor, Clark & Lunn Emerging Markets Equity $ 9,452, Actuarial Valuation The actuarial present value of accrued pension benefits was determined using the accrued benefit method prorated on service and using assumptions recommended by the actuary and approved by the Trustees. An actuarial valuation was prepared as at December 31, 2016 and completed in May 2017, by Eckler Ltd., a firm of consulting actuaries. Those results provide the present value of accrued pension benefits as at December 31, 2016 and accruing cost in A second actuarial valuation was prepared by Eckler Ltd. as at December 31, 2016 and extrapolated by Eckler Ltd. to December 31,

22 Notes to the Financial Statements for the year ended December 31, 2017 The assumptions used in determining the actuarial value of accrued pension benefits were developed by reference to expected long-term market conditions. Significant actuarial assumptions used in the valuations were: Rate of return on investments Rate of general wage increase Average rate of salary increase Post retirement cost of living increase 5.55 % 3.00 % 3.00 % 5.55 % 3.00 % 3.00 % for increases in general wage for increases in general wage growth plus a merit and promotion growth plus a merit and promotion component *, if applicable component*, if applicable 0.75 % 0.75 % Mortality rate RPP 2014 Public Sector with RPP 2014 Public Sector with Mortality Table (CPM-RPP2014Publ) Mortality Table (CPM-RPP2014Publ) with full generational improvements in with full generational improvements in mortality using CPM improvement mortality using CPM improvement Scale B (CPM-B). Scale B (CPM-B) *Salaries are assumed to increase in accordance with general wage increases in Canada at the rate of 3.0% per year for all members. Salaries for Division #1 plan members are assumed to increase by an additional merit and promotion component in accordance with the following table: Age Average Annual Increase Average Annual Increase over next 5 years to age % 2.3% % 2.2% % 2.0% % 1.9% % 1.8% 1.8% 1.7% % 1.7% 55 The actuarial value of net assets available for pension benefits has been determined reflecting long-term market trends (consistent with the assumptions underlying the valuation of accrued pension benefits). The valuation is based on a four year moving average market method with the market value being the underlying basis. The market value is adjusted by amortizing over a four year period the differences in each year between the fund's actual return and the long term expected return applicable for that year. The long term expected returns on plan assets for the smoothing period was 5.75% in 2014, 5.65% in 2015, 5.55% in 2016, and 5.55% in However, the excess of the actuarial value over the market value, positive or negative, is limited to 5%. 22

23 Notes to the Financial Statements for the year ended December 31, 2017 The actuarial value of net assets as at December 31 were: Market value of net assets available for pension benefits Market value of changes not reflected in the actuarial value of net assets Actuarial value of net assets available for pension benefits $ $ 185,434,000 $ 169,953,000 (8. 142,000) (2, ) 177,292, , Actuarial value as a percentage of market value 95.6 % 98.5 % The next required valuation of the Plan will be as at December 31, 2017 and will be completed in Election for Exemption from Special Payments The Brandon University Retirement Plan is subject to the Manitoba Pension Benefits Act and Regulations. The University Pension Plans Exemption Regulation 141/2007 allowed the University to make an election to be exempt from solvency and transfer deficiency payments. "2(1) An employer in relation to a university plan may, by filing a written election with the plan administrator, elect to be exempt from the solvency and transfer deficiency provisions." On January 19, 2009 the University filed such an election. With the exemption, the Plan will continue to be subject to the going-concern funding provisions of the Act. 9. Going-Concern Deficit Funding An actuarial valuation performed by the Plan's actuary, Eckler Ltd., to determine the Plan's funding status as required by the Pension Benefits Act of Manitoba, was prepared as at December 3 1, 2016 and filed with the Manitoba's Office of the Superintendent - Pension Commission in The actuarial valuation indicated an actuarial deficit of $5,116,000 as at December 31, 2016 using the accrued benefit method. The valuation is based on actuarial assumptions with regard to demographics, rate of return on investments and salary increases to compare the Plan's actuarial assets with its actuarial liabilities. The University is required to fund the matching contributions, as well as the actuarial cost of the defined benefits in excess of the matching costs. A funding deficit is required to be funded over a maximum period of 15 years. The existing funding deficit will be funded over IO years. The next actuarial valuation of the Plan is required as at December 31, 2017 and will be completed by September 30, The annual special payments estimated total to be made in 2018 is $293,000 (2017- $664,000). This special payments total will be confirmed once the valuation is complete. 10. Contributed Services Brandon University provides staff and miscellaneous administrative services at no charge to the Plan. The cost of these services is not reflected in the Financial Statements. 11. Comparative Figures Comparative figures for the year ended December 31, 2016 have been reclassified where necessary to conform with the presentation adopted for the year ended December 31,